For water and sewer utilities regulated by a state’s public utilities commission (PUC), mounting a rate case can be an expensive proposition. In fact, for some particularly small utilities, mounting a rate case can be more expensive than operating the utility for many months. It’s no wonder, therefore, that utilities may be reluctant to undertake rate cases on a regular basis. Some utilities may even wait longer than a decade between rate increases, a decision that may preserve short-term fiscal health, but can be costly in the long term.

The unpredictability of future costs makes it difficult to design new rate structures in preparation for a rate case. In my study at the EFC of rate structures across four different states, I’ve found four, region-specific challenges utilities may confront that lead to financial instability. These are declining water sales due to reduced demand and conservation measures, volatility in the price of power, drought stressors, and environmental and health regulations. The challenge in a rate case, therefore, is, how can the utility commission ensure the cost of service is fair to the consumer and that rates allow the utility to remain fiscally healthy? The three strategies discussed below can help utilities remain fiscally stable while avoiding constantly mounting rate cases by designing rate structures that adjust for uncertainty in future conditions.

How to Maintain Infrastructure Without Financially Drowning the Consumer

There’s a lot we don’t agree on; however, there’s one thing we can all say is true—everyone deserves access to clean water. Drinking water and wastewater utilities have taken on the responsibility of providing clean drinking water and to uphold public health standards in neighborhoods and communities. Unfortunately, there’s always a trade off: utilities have to invest in a variety of innovative technologies and infrastructure to ensure they are up to date with current drinking water standards. In order to do so, utilities typically need to rely customer revenues, which can raise another problem—affordability.

Stormwater and the pollution it spreads is becoming a major issue, especially in cities where it is the most difficult to control runoff. The greater amount of impermeable surface in cities prevents rainwater and snowmelt from penetrating the surface. Instead, the rainwater and snowmelt becomes runoff along our streets. Managing stormwater, and the pollution it carries, is a crucial part of protecting both residents and the infrastructure of a city. Green infrastructure is one way that cities can achieve this goal.

Think back to the last time you were on a public trail: what did you see along the path? Apart from trees and the occasional informational sign, you might have noticed water pipes, manmade channels, or sewer covers nearby. Do planned greenways, or public trails, just happen to intersect these service lines? My own casual observation walking along greenways in Chapel Hill, NC led me to think more about why they might be located along utility service lines and the possible implications for city planning. As it turns out, locating trails near existing or planned service lines can be advantageous for municipalities, and is consistent with city planning goals.

The dynamic between public and private systems has always been interesting, especially in the case of water and wastewater systems. Public water systems are usually non-profit entities managed by local or state governments, for which rates are set by a governing board. On the other hand, private water systems can be for-profit systems managed by investors or shareholders. Though rates are monitored by a state’s public commission, private systems are not necessarily subject to this regulating board. Additionally, the difference between public and private is not always distinct, as we sometimes see in Public-Private Partnerships. In this post, we present some interesting facts and figures based on an analysis of national data on ownership of water utilities.